More on Minsky

On Wednesday, I noted that I am revisiting some of Minsky's work, and that I will comment on his work from time to time.

One of Minsky's key arguments in Stabilizing an Unstable Economy is that what he calls "Big Government" plays two roles in alleviating the recurrent crises that plague capitalism in its current guise. First, there is fiscal action both deliberate and automatic as stabilizers kick in. Second, is the role of central banks as lenders of last resort.

And one of the results of the second role is that an implicit floor is placed on prices of financial assets. This, for Minsky, is critical, as it means that as balance sheets deteriorate during a financial crisis, financial institutions are not forced to sell assets at distressed prices. Commentators have referred to this as the Greenspan or Geithner "put", but it is clear from Minsky that this has been a feature of central banking for at least a century.

What strikes me is that if this is the case, then perhaps (it pains me to say this) the changes to fair value accounting rules might make some sense. And they might make some sense because, given this implicit asset price floor, they closer reflect reality. As Minksy notes, in every financial crisis since the late 60s, central banks have intervened to prop up asset prices. If this too is an (almost) automatic stabilizer, then asset prices at a time of crisis should reflect this.